Consider an industry where there are two firms having identical flat marginal cost curves. Price and output in the industry are determined as follows: First Firm 1 announces how much it will produce, then Firm 2 decides how much to produce, then the industry's output is sold at a price read off the industry demand curve.
a. Is the industry output greater or less than it would be under Cournot behavior?
b. Which firm is better off: Firm 1 or Firm 2?